The Consolidated Appropriations Act outlines new transparency requirements for covered service providers as it relates to ERISA group health plans. The Act requires covered service providers, i.e., brokers and consultants to include certain disclosures regarding the receipt of direct and indirect compensation in contracts for services entered, extended, or renewed on or after December 27, 2021. Highlights of the Act are listed below.
EXPANDING ERISA
This section expands ERISA as it applies transparency reporting requirements generally reserved for retirement benefits to group health plan benefits. The Act will require brokers and consultants to report both direct and indirect compensation received as a result of services rendered to group health plans. The list of services that fall under the Act are provided below. Whether a group health plan has a contract for services with a broker or consultant, or an arrangement for such services, the Act’s disclosure requirements must be met for the service provider’s compensation to be deemed reasonable and not a prohibited transaction. Importantly the Act does not distinguish between “contract” or “arrangement”. As arrangements are more informal than contracts, the Act may apply to those parties who do not have a written contract but have a history of dealings or a course of transactions.
COMPENSATION DEFINED
The Act defines compensation as anything of monetary value and non-monetary compensation valued at more than $250 (in the aggregate), during the term of the contract or arrangement. The disclosure requirements apply to receipt of both direct and indirect compensation. Direct compensation is that compensation received directly from the plan, while indirect compensation is compensation received from a source other than the plan.
THE ACT’S APPLICATION
The Act applies to both brokers and consultants and their respective affiliates and sub-contractors, who reasonably expect to receive $1,000.00 or more (adjusted for inflation) in compensation (direct or indirect) for providing any of the following services:
- selecting insurance products (including vision and dental)
- recordkeeping services
- medical management vendors
- benefits administration (including vision and dental)
- stop-loss insurance
- pharmacy benefit management services
- wellness services
- transparency tools and vendors
- group purchasing organizations
- preferred vendor panels
- disease management vendors and products
- compliance services
- employee assistance programs or
- third party administration services
The Act includes “the development or implementation of plan design” as an additional service subject to disclosure requirements for consultants only.
The Act does not apply to insurance carriers or pharmaceutical benefits managers.
DESCRIPTION REQUIREMENT FOR COMPENSATION
The Act requires that the broker or consultant disclose a description of compensation or cost to the group plan fiduciary-usually an employer. This description may be expressed as a monetary amount, a formula, or a per capita charge for each enrollee. If the compensation or cost cannot be reasonably expressed in those terms, then a disclosure may be substituted. The disclosure must state that additional compensation may be earned but cannot be calculated at the time of contract. This disclosure must include a description of the circumstances under which the additional compensation may be earned and provide a good faith estimate.
SERVICE PROVIDER OBLIGATIONS
Under the Act, the broker or consultant must disclose to the plan administrator the following:
- A description of the services to be provided under the contract or arrangement.
- A statement that the covered service provider, affiliate, or subcontractor will provide fiduciary services directly to the plan- if applicable.
- A description of all direct compensation (either in the aggregate or by service) that the broker or consultant and their respective affiliates or subcontractors reasonably expect to receive in connection with the services described, (as discussed in detail above).
- A description of all indirect compensation that the broker and consultant or their respective affiliates or subcontractors reasonably expect to receive in connection with all the services described above. This includes compensation from a vendor or brokerage firm based on a structure of incentives. This does not include compensation received by an employee from an employer on account of work performed by the employee.
- For indirect compensation, a description that includes identification of the payer and recipients is required; along with a description of the services rendered and the type of indirect compensation received.
- For compensation received on a transactional basis (e.g., commissions or finder’s fees) a description of the arrangement, along with identification of the payers and recipients is required. This description includes the taxpayer status of the recipient as either an affiliate or subcontractor.
- A description is required for compensation expected to be received in connection with termination of the contract or arrangement and must include how any prepaid amounts will be calculated and refunded.
This information must be disclosed to the responsible plan administrator before the contract is entered, extended or renewed. The service provider must notify the plan administrator of any changes within 60 days from the date the service provider is informed of any change.
If there is an error or omission relating to the disclosure of the required information by the service provider to the plan administrator, so long as the service provider sends the corrected information to the plan administrator, within 30 days from the date of discovery of the error, then the contract will continue to be considered “reasonable” under this Act.
PLAN OBLIGATIONS
When an employer offers a group health plan to its employees, generally someone within in the employer’s organization is deemed the plan fiduciary. The Act places certain obligations on plan fiduciaries. One of these obligations is to take reasonable steps to obtain missing information from the service provider and to correct any incorrect information upon discovery.
When an employer does not know that the service provider failed to make required disclosures under the Act and reasonably believes that the service provider disclosed the required information, then the employer will have acted in good faith. In this scenario, the employer must request the required information from the service provider. If the service provider does not respond to the request for more information within 90 days, then the employer must determine whether to terminate the contract or arrangement. In this case, the employer must also notify the Department of Labor.
There are specific notice requirements to follow when providing notice to the Department of Labor under the Act. In particular, the notice must specify the name of the covered plan; the contact information (name, address, EIN) for the plan sponsor, plan fiduciary and service provider; a description of services provided by the plan; a description of the information that the service provider failed to disclose; and a statement from the employer discussing if the plan is continuing to use the services of the services provider.
If the Employer requests information relating to a future service by the service provider and after 90-days the service provider fails to provide such information, the Employer must terminate the contract or arrangement as soon as possible.
Please be aware that the determination of the requirements and the application of specific laws and regulations to each employee welfare plan and/or employer may differ due to a number of variables. Nothing in this newsletter should be construed as tax or legal advice.